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The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing overhead costs incurred: Indirect materials Indirect labor Property taxes, factory Utilities, factory Depreciation, factory Insurance, factory $ 15,900 139,000 8,900 79,000 150,300 10,900 Total actual manufacturing overhead costs incurred S 404,000 Other costs incurred Purchases of raw materials (both direct and indirect) Direct labor cost S 409,000 $ 69,000 Inventories Raw materials, beginning Raw materials, ending Work in process, beginning Work in process, ending S 20,900 S 30,900 $ 40,900 $ 70,900 The company uses a predetermined overhead rate to apply overhead cost to jobs. The rate for the year was $20 per machine-hour. A total of 20,600 machine-hours was recorded for the year. Required 1. Compute the amount of underapplied or overapplied overhead cost for the year overhead cost
Expert Answer
(1) Predetermined Overhead Cost = [ Rate per machine hour * Total machine hours ]
= [ 20 * 20,600 ] = 412,000 = $ 412,000
Actual Overhead Cost = $ 404,000
As predetermined Overhead Cost is more than Actual Overhead Cost therefore Overhead Cost is Overapplied.
Overhead Cost is Overapplied by an amount = [ 412,000 – 404,000 ] = 8,000 = $ 8,000
(2) Schedule of Cost of goods manufactured for the year is as follows :
Chang Company Schedule of Cost of goods Manufactured for the year
Part 1
Particulars Amount ( In $ )
Raw Material ( Beginning ) 20,900
Add : Raw Material Purchased 409,000
Less : Raw Material ( Ending ) ( 30,900 )
Raw Material transferred to Work in Process 399,000
Part 2
Particulars Amount ( In $ )
Work in Process ( Beginning ) 40,900
Add : Raw Material transferred to Work in Process 399,000
Add : Direct Labour Cost 69,000
Add : Indirect Material 15,900
Add : Indirect Labour 139,000
Add : Property taxes for factory 8,900
Add : Utilities for factory 79,000
Add : Depreciation for factory 150,300
Add : Insurance for factory 10,900
Less : Work in Process ( Ending ) ( 70,900 )
Cost of Goods Manufactured for the year 842,000
Cost of Goods Manufactured for the year = $ 842,000
Point of Explanation
The Schedule of Cost of Goods Manufactured for the year is prepared in two parts. Part 1 when Raw Material transferred to Work in Process is calculated and Part 2 when Raw Material transferred to Work in Process is used in calculating Cost of Goods Manufactured for the year.
